Search

Pet Valu reports second quarter 2009 financial results

All financial results expressed in U.S. dollars unless otherwise
indicated
MARKHAM, ON, Aug. 11 /CNW/ - Pet Valu, Inc. announced today second
quarter results for fiscal 2009. On a consolidated basis, net income for the
quarter ended July 4, 2009 was $2.8 million or $0.28 per diluted share as
compared to net income of $3.6 million or $0.35 per diluted share for the
second quarter of fiscal 2008. Excluding non-comparable items, net income was
$3.6 million or $0.35 per diluted share as compared to net income of $3.8
million or $0.38 per diluted share for the second quarter of fiscal 2008.
COMPARABLE STORE SALES
Comparable store sales for the quarter ended July 4, 2009 increased by
6.0% in Canada and by 2.8% in the United States as compared to the quarter
ended June 28, 2008. During the quarter, higher margin high-quality pet
product sales have continued to show growth, and a more positive shopping
experience for customers has contributed to higher sales.
RESULTS
(in thousands of U.S. dollars, except EPS)
13 Weeks 13 Weeks 26 Weeks 26 Weeks
ended ended ended ended
July 4, June 28, July 4, June 28,
2009 2008 2009 2008
No. of Stores 356 339 356 339
System wide sales $52,297 $54,592 $101,398 $107,862
Sales and Revenue $43,271 $44,257 $84,545 $87,057
EBITDA(1) $4,354 $6,227 $8,801 $11,454
EBITDA excluding non-comparable
items $5,525 $6,597 $10,338 $11,824
Loss (gain) on foreign exchange ($440) ($127) ($262) $121
Net Income $2,807 $3,595 $5,529 $6,433
Net Income excluding non-comparable
items(2) $3,586 $3,841 $6,550 $6,679
Basic EPS $0.30 $0.38 $0.58 $0.71
Diluted EPS $0.28 $0.35 $0.54 $0.63
Basic EPS excluding non-comparable
items(3) $0.38 $0.41 $0.69 $0.74
Diluted EPS excluding non-comparable
items(3) $0.35 $0.38 $0.64 $0.66
Non-comparable items:
Strategic alternative and sale
related costs $1,171 - $1,536 -
Shareholder proxy costs - $370 - $370
Applicable tax on non-comparable
items ($392) ($124) ($515) ($124)
CANADIAN OPERATIONS
(in thousands of U.S. dollars)
13 Weeks 13 Weeks 26 Weeks 26 Weeks
ended ended ended ended
July 4, June 28, July 4, June 28,
2009 2008 2009 2008
No. of Stores 295 277 295 277
System wide sales $42,957 $45,471 $82,595 $90,053
Sales and Revenue $33,931 $35,129 $65,745 $69,236
EBITDA(1) $3,459 $5,621 $7,059 $10,509
EBITDA excluding non-comparable
items $4,630 $5,991 $8,595 $10,879
Loss (gain) on foreign exchange ($440) ($127) ($262) $121
Net Income $1,934 $3,041 $3,833 $5,559
Net Income excluding non-comparable
items(2) $2,714 $3,287 $4,854 $5,805
Non-comparable items:
Strategic alternative and sale
related costs $1,171 - $1,536 -
Shareholder proxy costs - $370 - $370
Applicable tax on non-comparable
items ($392) ($124) ($515) ($124)
U.S. OPERATIONS
(in thousands of U.S. dollars)
13 Weeks 13 Weeks 26 Weeks 26 Weeks
ended ended ended ended
July 4, June 28, July 4, June 28,
2009 2008 2009 2008
No. of Stores 61 62 61 62
System wide sales $9,340 $9,121 $18,803 $17,809
Sales and Revenue $9,340 $9,128 $18,800 $17,821
EBITDA(1) $895 $606 $1,743 $945
Net Income $873 $554 $1,696 $874
NON-COMPARABLE ITEMS
During the second quarter of fiscal 2009, the Company incurred $1.2
million of non-comparable costs in relation to the strategic alternative
process including the negotiation of the sale of the Company referred to in
the Company's July 6, 2009 press release. These costs will continue into the
third quarter to facilitate the shareholder vote required to complete the sale
and the closing of the transaction. Year to date these costs were $1.5
million. In the first two quarters of the prior year, non-comparable costs
were comprised of legal and other costs in relation to the 2008 shareholder
proxy contest.
KEY ACCOMPLISHMENTS
During fiscal 2008 and the first half of fiscal 2009, the Company pursued
key priorities intended to improve results from operations, liquidity, capital
resources and cash flow.
Store margin improvements
During the second quarter of fiscal 2009, the Company undertook certain
actions to increase gross profit margins at corporate and franchise store
level. Increases in store gross profit margins improve the overall health of
the operations by improving the profits of both the Company and its
franchisees. Over the past year, store gross profit margins had weakened as a
result of increases in the wholesale cost of products due to increases in
commodity prices and, in Canada, an increase in the Canadian dollar cost of
imported products. Among the Company's actions to increase store gross profit
margins there were retail pricing adjustments across various product lines
where competition allowed, as well as adjustments to wholesale prices related
to a strengthening Canadian dollar.
Reniching
The Company continued to pursue a long-term objective of shifting its
product offering to higher-margin, high-quality pet products, which include
pet specialty brands and private label products featuring a wellness-focused
approach to pet nutrition. Except for changes in foreign currency exchange
rates, this reniching program has improved and is expected to continue to
improve operating profits and enhance the image of the Company as a specialty
retailer.
Inventory Investment
The Company's inventory buying system is designed to take advantage of
opportunities, including those in relation to cost inflation. During fiscal
2008, the Company's warehouse inventory levels increased significantly. The
Company believes that declines in various commodity prices will slow the rate
of any cost increases in fiscal 2009 and will likely result in a reduction of
these inventories in fiscal 2009. At July 4, 2009, warehouse inventory levels
were C$1.8 million less than fiscal 2008 year end levels.
Development of Canadian Corporate Store Programs
During fiscal 2008, the Company dedicated an increasing amount of effort
to the operation of its Canadian company-owned stores by developing and
implementing programs designed to increase sales and operating profitability.
These programs included more product and sales training for corporate store
staff and an incentive program for corporate store managers. The
implementation of these programs has largely been completed. However, they
continued to contribute to the increase in comparable store sales of 8.7% for
Canadian company-owned stores in the first half of fiscal 2009.
Acquisition
On August 22, 2008, the Company completed the purchase of a 15 store pet
food and supply business known as BERRYS or BERRYS...YOUR PETSCHOICE. These
stores are all located in eastern Ontario. The purchase price of C$2.4 million
was financed using the Company's existing bank operating line. At the time of
acquisition, the Berrys operations and the anticipated operating synergies
were expected to incrementally contribute an approximate C$600,000 to the
Company's consolidated income before income taxes during the first 12 months
of inclusion. Through the second quarter of fiscal 2009, these stores
performed largely as anticipated.
Amendment of Bank Credit Agreement
During the third quarter of fiscal 2008, the Company entered into an
agreement with its principal bank to amend its existing credit agreement dated
as of July 14, 2006 ("Credit Agreement"). The amendment increased the
revolving line of credit in the Credit Agreement from a maximum of C$15
million to a maximum of C$20 million. In addition, the amendment created a new
C$5 million term loan that bears interest at prime plus 1% and is repayable in
24 equal monthly installments. The amendment did not materially change any
other terms contained in the Credit Agreement.
Repayment of 10% Non-convertible Debentures
In accordance with a debenture holder agreement dated July 24, 2006, the
scheduled repayment of principal and accrued interest for the 10%
non-convertible debentures created under this agreement was made on July 24,
2008 by cash payments to the debenture holders. The amount of the payments was
C$8,877,836, consisting of principal repayments of C$8,820,000 and accrued
interest of C$57,836. These payments were financed from the new bank term
loan, the Company's bank operating line and funds provided from operations.
OUTLOOK
The Company continues to pursue strategic initiatives to improve earnings
during 2009 as outlined in the Outlook section of the fiscal 2008 Annual
Report.
Strategies Addressing Current Economic Conditions
The Company has implemented specific programs to address recession-based
impacts. These include specific initiatives with respect to reductions in
occupancy and other costs where reductions might be possible as a result of
the current economic conditions. Cost reductions on some warehouse leases are
expected as those leases are renewed during the third quarter of fiscal 2009
or replaced with leases for new facilities.
To the extent that customer buying patterns have changed as a result of
the current economic conditions, the Company's financial performance has not
been materially impacted. The Company will continue to monitor activity in
all the markets in which the Company operates and respond accordingly.
Pursuit of Organic Growth
Organic growth has resulted primarily from the Company's reniching
programs, including the additions of new differentiated products and the
continued development of private label products. These reniching programs are
on-going and include further product differentiation, staff training,
facilities upgrades, and customer service initiatives. The Company will
continue to focus on these programs for the foreseeable future with the goal
of increasing sales, maintaining strong margins and improving the customer
experience and product selection.
Initiatives to Sustain Growth in Earnings
Improvements to the efficiency of the operation of the business are being
sought through expanded automation in relation to both routine decision-making
and inventory management. Improvements to productivity are being pursued
through the development of performance management measures at all levels of
staffing.
POTENTIAL SALE OF PET VALU
As announced in a press release dated July 6, 2009, Pet Valu, Inc. and
Pet Valu Canada Inc. have entered into a definitive agreement to be acquired
by certain affiliates of Roark Capital Group, an Atlanta based private equity
firm. Under the terms of the agreement, shareholders of Pet Valu Canada Inc.
(Pet Valu, Inc.'s publicly-traded Canadian operating subsidiary) will receive
C$13.68 in cash for each of their exchangeable shares, representing a total
equity value of approximately C$143.7 million. The transaction is subject to
shareholder and court approval and there can be no assurance that it will be
completed. The Company's Board of Directors have determined that the
transaction is fair to shareholders of the Company and in its best interest
and are recommending that shareholders vote in favour of the transaction.
SPECIAL MEETINGS OF SHAREHOLDERS
Special meetings of the shareholders of Pet Valu, Inc. and Pet Valu
Canada Inc. will be held on August 25, 2009 at the Toronto Board of Trade at
10:00 am and 10:30 am EDT, respectively. On July 28, 2009, an information
circular was filed on SEDAR with respect to these meetings. During the
meetings, shareholders will vote on several resolutions required to effect the
transaction.
CONFERENCE CALL
Due to the pending transaction there will not be a conference call to
discuss the Company's financial results for the second quarter of fiscal 2009.
NON-GAAP FINANCIAL MEASURES
(1) EBITDA is not a recognized measure under GAAP. As this measure does
not have a standardized meaning prescribed by GAAP, the Company's
method of calculating EBITDA may differ from other companies. The
Company believes that EBITDA is a useful supplemental measure as it
provides investors with an indication of cash available prior to debt
service, capital expenditures and income taxes.
(2) Net Income excluding non-comparable items is not a recognized measure
under GAAP. As this measure does not have a standardized meaning
prescribed by GAAP, it is unlikely to be comparable to similar
measures presented by other companies. The Company believes that
earnings excluding non-comparable items is a useful supplemental
measure. It is used by the Company to assess its underlying
performance from continuing operations and to provide a more useful
comparison by eliminating non-recurring items.
(3) EPS excluding non-comparable items is not a recognized measure under
GAAP. As this measure does not have a standardized meaning prescribed
by GAAP, it is unlikely to be comparable to similar measures
presented by other companies. The Company believes that earnings
excluding non-comparable items is a useful supplemental measure. It
is used by the Company to assess its underlying performance from
continuing operations and to provide a more useful comparison by
eliminating non-recurring items.
FORWARD-LOOKING STATEMENTS
Certain information in this news release is forward-looking and is
subject to important risks and uncertainties. Forward-looking information
includes information concerning the Company's future financial performance,
business strategy, plans, goals, objectives, business prospects and
opportunities. The forward-looking information reflects predictions and does
not in any way reflect a guarantee. Factors which could cause actual results
or events to differ materially from current expectations include, among other
things: the ability of the Company to successfully implement its strategic
initiatives and whether such strategic initiatives will yield the expected
benefits; competitive conditions in the businesses in which the Company
participates; changes in consumer spending; the outcome of legal proceedings
as they arise; general economic conditions and normal business uncertainty;
the availability of suitable store locations; customer preferences towards
product offerings; adverse climate changes; the occurrence of a pandemic or
other catastrophic event which could create shortages of labour, products or
services required to operate the business profitably; fluctuations in foreign
currency exchange rates; changes in the Company's relationship with its
merchandise and service suppliers; interest rate fluctuations and other
changes in borrowing costs; the outcome of strategic alternatives being
considered by the Company's board of directors; and changes in laws, rules and
regulations applicable to the Company or the markets in which the Company
operates. The Company cautions that this is not an exhaustive list of factors
that may affect the forward-looking information in this news release.
Potential investors and readers are urged to give careful consideration to all
of these factors in evaluating any forward-looking information and are
cautioned not to place undue reliance on such information. While the Company
believes that its forecasts and assumptions are reasonable, results or events
predicted in this forward-looking information may differ materially from
actual results or events.
COMPANY PROFILE
Pet Valu is a specialty retailer and wholesaler of pet food and
pet-related supplies and a franchisor of pet food and pet-related supply
outlets. The TSX stock symbol for Pet Valu Canada Inc., Pet Valu, Inc.'s
publicly traded Canadian operating subsidiary, is PVC.